Question - Mogi Corp. manufactures one primary product, which is processed through two divisions (P and R). Costs for each division are:
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P
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R
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Varioable cost per gallon
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$3
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$15
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Fixed cost per gallon
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2
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12
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P Division produces 25,000 gallons per month. R Division uses 40,000 gallons per month; of that, 25,000 gallons are purchased internally and 15,000 are purchased externally at $10 per gallon. After processing through R Division, a gallon of final product can be sold for $55.
1. What is Mogi Corp.'s operating profit if all 40,000 gallons of product are transferred in a month?
2. By how much would this profit increase if R Division could acquire all necessary gallons internally?